The Continuing Crisis

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The market rally in response to the European bailout of Greece seems a bit premature, if not overdone.

To their credit, unlike in the US where banks were made whole for their losses, European leaders reached a compromise where bondholders and Greece both took losses. To be fair, in the final accounting, so will the general populace of Europe, to some degree. So it was kind of a shared pain with some of the sharing designed to come later.

Banks that are holding the majority of the bonds have to first eat 50% of the value of those bonds and then raise a lot of capital in part to cover this shortfall.